South Korea has hiked to nearly half a million dollars its reward for information leading to the capture of Yoo Byung-un, the head of the family that owns the operator of a ferry that capsized and sank last month, killing more than 300 people.

The figure of 500 million won ($490,000) being offered by authorities after a week of futile searching for Yoo is a tenfold increase from the 50 million set initially, and is the maximum allowed by criminal law as a reward for fugitives.

"This is the largest amount ever offered by an investigative authority as reward," said a prosecution official involved in the case.

Yoo is wanted on charges of embezzlement, negligence and tax evasion stemming from a web of business holdings centered around a holding company owned by his sons that ran the ferry operator.

The authorities have also offered 100 million won for tips leading to the arrest of one of the sons. The other is believed to be in the United States. The trio have all evaded summons to appear for questioning and have arrest warrants outstanding.

Yoo's daughter, who ran one of the companies in the sprawling business empire, was arrested in France, South Korea's Yonhap news agency said.

Divers are still searching for the bodies of 16 people who remain missing and will begin preparations to cut through the hull of the sunken ferry near the stern, where many of the missing are believed to be, the coast guard said on Tuesday.

The prosecution said the ferry, the Sewol, was structurally defective after a remodelling to add capacity and was massively overloaded with cargo. Making a sharp turn, it failed to restore its balance, and capsized.

Strong currents in the area have made search and recovery operations extremely difficult.